US targets firms linked to North Korea's nuclear dealings

North Korea is not a rich country. But the US has squeezed its finances in the past, in an effort to get Pyongyang to curb its weapons programs. Armed with new UN sanctions, Washington seems determined to try this approach again.

That is the calculus that may lie behind Tuesday's action by the Treasury to impose financial sanctions on Hong Kong Electronics – an Iranian firm that the US accuses of being part of North Korea's missile proliferation network.

The action means that any bank accounts or other assets linked to the firm within the US financial system must be frozen. Nor can Americans do any business with the company.

"North Korea uses front companies like Hong Kong Electronics and a range of other deceptive practices to obscure the true nature of its financial dealings, making it nearly impossible for responsible banks and governments to distinguish legitimate from illegitimate North Korean transactions," said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence, announcing the move Tuesday.

The US says that Hong Kong Electronics has arranged for payments to Pyongyang in exchange for weapons exports, presumably to the Iranian government.

United Nations Security Council resolutions now call for international efforts to block financing of North Korean's nuclear, missile, and other dangerous weapon activities.

Obama administration officials have said they intend to enforce this resolution. Reportedly, a dozen or more companies could be targeted, in countries from Singapore to Myanmar.

Slapping penalties on Hong Kong Electronics "is a part of our overall effort to prevent North Korea from misusing the international financial system to advance its nuclear and missile programs and to sell dangerous technology around the world," said Mr. Levy – implying further action to come.

Myanmar, in particular, may face US action on a number of fronts.

Myanmar was thought to be the destination of the Kang Nam, a North Korean freighter US intelligence believes may be loaded with weapons material. A US Navy vessel has shadowed the Kang Nam since it left its home port. But on Tuesday, the ship reversed course, said officials. For the moment they have little idea where it is headed.

The US has used financial sanctions on North Korea in the past. In 2005, the Treasury warned US firms from doing business with Banco Delta Asia, a Macau-based institution the US called "a willing pawn of the North Korean government".

Among other things, Banco Delta Asia was laundering counterfeit $100 bills for North Korea, providing hard currency to buy luxuries for the regime's leaders, according to US officials.

After the US cut the bank off, "banks across Asia refused to do business with Kim Jong Il, and as a result he was unable to pay his generals," said Rep. Ed Royce (R) of California at a June 17 House Foreign Affairs hearing on the Korea situation. "And he got very, very antsy about that."

The Bush administration later relaxed those sanctions as it pursued disarmament talks with Pyongyang. That was a mistake, said Mr. Royce at the hearing.

South Korean intelligence has provided the US with details about 10 to 20 North Korean bank accounts, from China to Switzerland, according to Royce. Those need to be closed, he said.

"You shut everything down when you shut down the hard currency," said Royce.

Some experts dispute the effectiveness of this approach. They assert that North Korea's counterfeiting activities may have been exaggerated.

But the North Korean economy is so fragile that any loss of cash earnings might be painful to the Pyongyang regime.

North Korea's economy is only barely above subsistence level, said Stephen Bosworth, US Special Representative for North Korea Policy, at a June 11 Senate Foreign Relations Committee hearing. But it may be so damaged that economic sanctions cannot do much.

"Certainly, carefully targeted sanctions are a very important part of ... our tool kit in dealing with North Korea," said Mr. Bosworth, "But we should not be under any illusions that these in and of themselves are going to bring about a sharp reversal of the current situation."